Input Service Distributor (ISD)
Input Service Distributor means an office of the supplier of goods/services which receives tax invoices towards receipt of input services and issues a prescribed document for the purposes of distributing the credit of CGST/SGST/IGST paid on the said services to a supplier of taxable goods/services having the same PAN as that of the said office.
Basically, a head office/regional office can distribute its input credit to its branches for services that have been received and paid for by the head office/regional office but used for output goods/services by the branches.
NOTE: It is important to note that the ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services only and not goods (inputs or capital goods).
Such head office/regional office has to register itself as an Input Service Distributor under GST.
Manner of distribution of credit
- The credit can be distributed against a prescribed document issued to each of the recipients of the credit so distributed. The credit available for distribution in a month shall be distributed in the same month.
- The amount of the credit distributed shall not exceed the amount of credit available for distribution. The amount in-eligible as credit and the amount eligible as credit shall be separately distributed.
- The credit of tax paid on input services attributable to one specific recipient shall be distributed only to that recipient.
- The credit of tax paid on input services attributable to more than one/all recipients of credit shall be distributed amongst such recipients on a pro rata basis of the turnover in a State or UT of such recipient, during the relevant period*, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the relevant period.
- The ITC on account of Integrated tax shall be distributed as integrated tax to every recipient.
- The ITC on account of Central tax and State tax shall:
In respect of a recipient located in the same State in which the ISD is located, be distributed as ITC of central and State tax respectively.
In respect of a recipient located in a State other than that of the ISD, be distributed as integrated tax and the amount to be so distributed shall be equal to the aggregate of the amount of ITC of central tax and State tax that qualifies for distribution to such recipient.
- Transitory provisions – ISD can distribute credit in respect of services received prior to GST even if invoices of such services were received after introduction of GST.
- An ISD will have to file monthly returns in GSTR-6 within 13 days after the end of the month and will have to furnish information of all ISD invoices issued.
- The details in the returns will be made available to the respective recipients in their GSTR 2A. The recipients may include these in its GSTR-2 and take credit.
- An ISD shall not be required to file an Annual return.
- An ISD cannot accept any invoices on which tax is to be discharged under reverse charge mechanism. This is because the ISD mechanism is only to facilitate distribution of credit of taxes paid. The ISD itself cannot discharge any tax liability (as person liable to pay tax) and remit tax to government account. If ISD wants to take reverse charge supplies, then in that case ISD has to separately register as normal taxpayer.
* Relevant Period means:
- If the recipients of the credit have turnover in their States/UT in the financial year preceding the year during which credit is to be distributed, the said financial year or
- If some or all recipients of the credit do not have turnover in their States/UT in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.